The Outer Limits

So where are back from whence we came and I hope you enjoyed the ride. I know – who am I kidding – it’s been a rough month and let’s hope that April will not only bring us better weather but also put us into a less devious market phase. So let’s see where we’re at on the equities side:

It’s getting interesting as we now have reached the outer limits of the current whipsaw zone. No, there is nothing wrong with your television set. Do not attempt to adjust the picture. We are controlling transmission. If we wish to make it louder, we will bring up the volume. If we wish to make it softer, we will tune it to a whisper. We will control the horizontal. We will control the vertical.

Literally that is – I’m not sure there is much left on the vertical but that was a nice jump in four days. If we push above 1880 then the momentum may again propel us higher in the stair step fashion we have have seen lately. Also don’t forget that SPX 1880 will switch our P&F back into bullish mode.

Also rather compelling right now is that the VIX is starting to drop below a pretty pronounced support line. And that may herald a new low volatility period that gets us back to the 12 mark or below. OR it may be that we are dropping from here. Unfortunately I don’t see a price pattern to get us into a position right now. At least on the equities side.

But that doesn’t mean we can’t have any fun, does it? Here’s crude which I very much liked this morning and happily pimped to my subscribers. I got filled short near 101 and it’s been one wild ride ever since. Have taken partial profits but will keep 50% in the running for a touch of daily support near 99.1. And if you weren’t a sub – well then you probably missed out ;-)

On a totally different note – you recall my write up on market phases the other day. Here’s a chart that should do two things for you – demonstrate two very distinct market periods for one. And then also drive home the point that mean reversion does not always happen, especially on the Forex and futures side. So if you trade expecting platykurtotic markets you will get burned, just a matter of time. Always know which market phase you are in and that also means looking at volatility. I and Scott have written about this rather exhaustively, go hunt it down – the search box is your friend.

We have a lot of setups tonight – here’s a freebie: Bond futures – the 10-year is at NLSL support but is also painting an RTV-S. I want to be short here with the trend if the NLSL triggers tomorrow.

Quite a bit more waiting below the fold – please join me in the lair:


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The Day After

Since the onset of QEx I have seen this script play out countless times. We get a downside correction which pushes toward the edge of daily or weekly resistance (Mo – Wed). Then some news or rumor induced headlines start injecting a healthy dose of volatility into the tape (yesterday). What follows is a complete flatline – a.k.a. the day after.

The tape basically freezes and there is little participation – all the sellers (or buyers) have suddenly gone MIA. This serves to reel in anyone with a strong opinion – especially the retail crowd which enjoys playing options.

Here’s a snapshot of today’s session as seen on our Zero indicator. As you can see the signal shows almost no participation. And based on prior occurrences over the past few years both sides usually get screwed the day that follows as vega squeeze serves to devalue winning long option premiums and of course eviscerate anyone holding short. Of course that is assuming we punch higher ¬†from here – which has been the case nine out of ten times. Should recent history be our guide? What if it’s different this time? What to do?

My answer – as always – stick with the charts. Despite the recent gyrations we now have excellent context to plot our way forward. Let’s get started – shall we? Here’s the SPX which now sports a beautiful inside day right on top of the 25-day SMA. Not only that but we also have an NR4 (narrowest range in four days) and an LV4 day (guess what that one means). So excellent context here.

The Dow cash in a similar configuration. Here we’re sitting right on top of the SMA, thus allowing both sides a fair shot at the big price.

And the RUT – exactly the same idea but the bears also enjoy a Retail Variation Short starting tonight. So no guesswork required – we have excellent setups across equities and you won’t need a crystal ball to get positioned. Simply follow price.

Now on to Forex and the futures – we’ve got some goodies tonight!


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Cheers,

Happy Monday Morning Briefing

I trust you all enjoyed a relaxing and peaceful Thanksgiving weekend. No holidays over here in Spain but I didn’t let that deter me from kicking back a little and catching up on some good movies. Scott and I worked a little on our secret project but we didn’t exactly put the petal to the metal – we all need time to recharge our batteries. Never underestimate the psychological toll that trading can inflict on you – it is extremely important that you create your personal mental haven from this activity and to make sure that it is insulated as much as possible. There must be a refuge inside of you – that one thing you can rely on when things get rough. Mine is exercise and practicing martial arts – does wonders for me and if I miss only a few days I’m out of sync.

And for yours – well, whatever that is only you can figure out ;-)

Alright let me climb off my soap box and on to the markets – the Dollar came across a stash of viagra this morning and it’s been running like gangbusters since. I think we may have some possible resistance near that upper 100-hour BB. If it gives then there’s a daily NLBL at 81.06 and right above it we’ve got the 100-day SMA. So expect some significant resistance straight ahead.

Now since it’s the Monday after a long weekend I’ll throw in a little long term perspective as well. Some of you subs have seen this chart on several occasions and you are all aware that the Dollar has been scraping the tipping point of a long term converging trend for a while now. We are right on top of the 25-month and 100-month SMA – the diagonal was briefly breached but then recovered at the close of October. The P&F is still pointing at 77 as you may recall but it’s refused to drop below 80 which I think would represent its death knell. Today’s ride higher is interesting and we shall see if the Dollar can recover back above its 100-month SMA, which incidentally should be lining up with its 100-day as well.

So on a short term basis I think it’s worthwhile to consider some short positions if the upper 100-hour BB line holds. A little pop higher is possible but if we approach the 91 mark I’ll be looking to be short. If we breach it – well, I would have to follow price and flip positions. Not an easy trade as the month just started but since the 100-day SMA lines up so nicely we may have a unique opportunity to positioned ourselves long term and manage our trade from a daily perspective all the way into Christmas.


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Cheers,





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